By: Steve Smith
Today’s writing will be relatively short as I’m about to start my nine-hour drive back to Florida.
After watching the first couple of hours of trading I decided to bail early in order to get home and be well rested for tomorrow.
This morning, I planned to scoop up a few names and then use the VIX to protect against the downside. Last week, I shared why I thought the VIX was too low, and it could pop if there were more downside to stocks.
But, the stocks dropped and VIX was barely popping. Uh oh! I’ve seen this before. In fact, I tried this trade, with two other names plus the VIX last Thursday and quickly closed all three positions, miraculously for a small, as in tiny, profit.
Same thing this morning, except it, was a small loss.
All told, over these two days, Options360 Concierge Trading Service members and I are even. These are days where the Dow dropped a combined 1200 points and the SPY’s down another 3%.
Many of us use sports analogies when discussing trading. I’ve often compared it to boxing and said we’re currently in a ‘jab-and-move’ environment. If you don’t see an opening for a knock-out punch, at least try to win on points.
A colleague uses poker as an analogy; if he doesn’t have two good hole cards he shucks them. In other words, he doesn’t play in that particular game. His mantra is, to look at a lot of cards, but hold very few. He only plays the ones that will give him a high probability of winning. Folding hand-after-hand might seem boring, but it keeps you at the table.
Again, the market right now is characterized by relentless-but-orderly selling. It’s hard to sell new lows, rallies don’t last, and fear is still not in the air.
Right now the best course of action is to be a patient observer. Initiate a trade or two if the setup seems attractive, but be quick to fold if the next card/price move doesn’t improve the position’s situation.